HBO to start stand-alone streaming service

Emily SteelNew York Times News Service

Published
7:00 pm CDT, Sunday, October 19, 2014

This file publicity image released by HBO shows Emilia Clarke as Daenerys Targaryen in a scene from "Game of Thrones." HBO plans to offer a stand-alone version of its popular video-streaming service, CEO Richard Plepler said at an investor meeting at parent Time Warner Inc. on Wednesday, Oct. 15, 2014. (AP Photo/HBO, Keith Bernstein, File)

This file publicity image released by HBO shows Emilia Clarke as Daenerys Targaryen in a scene from "Game of Thrones." HBO plans to offer a stand-alone version of its popular video-streaming service, CEO

This file publicity image released by HBO shows Emilia Clarke as Daenerys Targaryen in a scene from "Game of Thrones." HBO plans to offer a stand-alone version of its popular video-streaming service, CEO Richard Plepler said at an investor meeting at parent Time Warner Inc. on Wednesday, Oct. 15, 2014. (AP Photo/HBO, Keith Bernstein, File)

This file publicity image released by HBO shows Emilia Clarke as Daenerys Targaryen in a scene from "Game of Thrones." HBO plans to offer a stand-alone version of its popular video-streaming service, CEO

HBO announced Wednesday that it would start a stand-alone Internet streaming service in the United States in 2015 that would not require a subscription to a traditional television service.

The premium cable network, which is home to original programming and movies, is attempting to lure a new generation of viewers who might never pay for traditional television packages or have canceled their cable or satellite service.

Richard Plepler, chief executive of HBO, pointed to 10 million homes in the United States that pay for broadband connections but not a traditional TV service.

“That is a large and growing opportunity that should no longer be left untapped. It is time to remove all barriers to those who want HBO,” he said. “All in, there are 80 million homes that do not have HBO, and we will use all means at our disposal to go after them.”

The new service represents one of the boldest moves from a television group to make its programming available via Internet connections. It comes as television groups face increased competition from services like Netflix, Amazon and Hulu that make content available outside the traditional television business model.

Other details about HBO’s new service were not immediately available. HBO now makes its content available over the web to subscribers via its HBO Go service.

The news came as HBO’s parent company, Time Warner, outlined its plan for growth during an investor meeting. Three months after rejecting an $80 billion takeover from Rupert Murdoch’s 21st Century Fox, Jeffrey L. Bewkes, chief executive of Time Warner, is being forced to make his case that Time Warner is better off going it alone.

That strategy includes a combination of increasing original programming, exploiting digital business opportunities, expanding internationally and cutting costs across Time Warner’s television and film properties, which include the HBO premium cable network, Turner cable networks and Warner Bros. film studios.

Bewkes said that it was a “new era” for the company and that investors could expect Time Warner to more than double its earnings in the coming years.

The stakes are high. Time Warner now stands alone as a pure entertainment group after Bewkes shed the conglomerate’s cable, Internet and magazine businesses in recent years.

“We have transformed our company to take advantage of these opportunities,” Bewkes said. “We now have a unique combination of global scale and at the same time an intense focus on great video content.”

Pending consolidation among cable and satellite companies raises questions about whether Time Warner has the scale it needs to compete on its own. At the same time, huge changes in how people watch television and movies are cutting into audiences, upending traditional business models and putting pressure on Time Warner’s networks.

“Bewkes has been focused on simplifying the business,” said Kannan Venkateshwar, a media analyst with Barclays. “But given the new ecosystem, is it time to start looking at something different and step out of the comfort zone?”

HBO was one major area of focus. In addition to announcing its new streaming service, the company promised to make more money on domestic subscribers and outlined its plans to grow internationally. It also announced plans for its first brand marketing campaign in more than 20 years, highlighting the value of an HBO subscription.

Another concern is Turner, the home to CNN, TBS and TNT. The group of cable networks has faced ratings declines, and Turner has said it would expand its original programming in response. The company said that it would double its investment in original programming to $1 billion by 2018 from about $500 million. “We need to do more with more impact,” said John Martin, the chief executive of Turner.

Live sports is another priority, as the games typically draw high ratings, lucrative fees from cable and satellite TV providers and higher ad rates.

Some analysts have raised questions, however, about how the networks will stand out against the proliferation of original programming across television and digital networks today.

Time Warner is also facing questions about its plans to shore up an anemic slate at its Warner Bros. film studio group. Investors are likely to be looking for other ways that the group could make more money as well, perhaps by exploiting its library of TV and film content or through digital streaming.

Cost-cutting initiatives are already underway across Time Warner. Last week, the Turner Group announced that it was cutting its workforce by about 10 percent, or about 1,475 jobs. Warner Bros. is also expected to cut its employee base by about 1,000.

Shares in Time Warner are now trading at about $72, the same level as before Fox’s offer became public in July. After news broke about the deal, which valued the company at $85 a share, shares in Time Warner jumped to about $87.

At the time, analysts expected that a deal was likely to go through if Fox increased its offer to about $100, but Time Warner’s management and board thought they could reach that target on their own in a year and a half.

Whether or not Time Warner management is able to convince investors with their pitch could determine whether the company will once again find itself prey to a new bid by Fox or another group, analysts said.

Todd Juenger, an analyst with Bernstein Research, said in a recent report that investors should do well either way.

“If the growth plan is well received and executed, the stock should outperform,” he said. “If it’s not, then ultimately we believe Fox or someone else will come back (to a much more receptive Time Warner board) and investors will ultimately be rewarded as well.”